The largest annual economics conference takes place this weekend in San Diego - programme (with links to many papers) is here.
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The key quotations (and the explanation of why many economists - ignoring the fact that the euro is a political undertaking in the first instance - get their predictions wrong) are by Barry Eichengreen.
“There may be a logic to Greece leaving, but the mechanics are too disruptive for both Greece and its neighbours,” said Barry Eichengreen, an economist at UC Berkeley, who has long argued that the euro is irreversible.
“An appreciation of European politics makes you realise that everything will be done to prevent a breakup of the monetary union. It would be intensely catastrophic, economically and politically.”
HBR Blog Network
The End of Economists’ Imperialism
by Justin Fox | 9:41 AM January 4, 2013
“By almost any market test, economics is the premier social science,” Stanford University economist Edward Lazear wrote just over a decade ago. “The field attracts the most students, enjoys the attention of policy-makers and journalists, and gains notice, both positive and negative, from other scientists.”
Lazear went on to describe how economists, with the University of Chicago’s Gary Becker leading the way, had been running roughshod over the other social sciences — using economic tools to study crime, the family, accounting, corporate management, and countless other not strictly economic topics. “Economic imperialism” was the name he gave to this phenomenon (and to his article, which was published in the February 2000 issue of the Quarterly Journal of Economics). And in his view it was a benevolent reign. “The power of economics lies in its rigor,” he wrote. “Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing theory, and revising the theory based on the evidence. Economics succeeds where other social scientists fail because economists are willing to abstract.”
Triumphalism like that calls for a comeuppance, of course. So, as the nation’s (and a lot of the world’s) economists gather this weekend in San Diego for their annual hoedown, it’s worth asking: Are there any signs that the imperialist era of economics might finally be coming to an end?
Lazear acknowledged one such indicator in his article — the invasion of economics by psychological teachings about cognitive bias. Two years later, in 2002, the co-leader of that invasion, Princeton psychology professor Daniel Kahneman, won an economics Nobel (the other co-leader, Amos Tversky, had died in 1996). But while behavioral economics has since solidified its status as an important part of the discipline, it hasn’t come close to conquering it. On the really big questions — how to run the economy, for example — the mainstream view described by Lazear has continued to dominate. Economists have also continued their imperialist habit of delving into other fields: 2005’s Freakonomics, co-authored by Becker disciple Steven Levitt, was a prime example of this — and sold millions of copies. As for Lazear, he got himself appointed chairman of President George W. Bush’s Council of Economic Advisers in 2006.
And then, well, things didn’t go so well. The financial crisis and subsequent economic downturn — which Lazear somewhat infamously downplayed while in office — have put a big dent in the credibility of the macro side of the discipline. The issue isn’t that economists have nothing interesting to say about the crisis. It’s that they have so many different things to say about it. As MIT financial economist Andrew Lo found after reading 11 accounts of the crisis by academic economists (along with nine by journalists, plus former Treasury Secretary Hank Paulson’s personal account), there is massive disagreement not just on why the crisis happened but on what actually happened. “Many of us like to think of ﬁnancial economics as a science,” Lo wrote, “but complex events like the ﬁnancial crisis suggest that this conceit may be more wishful thinking than reality.”
Part of the issue is that Lazear’s description of the scientific way in which economics supposedly works (state a theory, test it, revise) doesn’t really apply in the case of a once-in-a-lifetime financial crisis. I tend to think it doesn’t apply for macroeconomics in general. As economist Paul Samuelson is said to have said, “We have but one sample of history.” Meaning that you can never get truly scientific answers out of GDP or unemployment numbers.
That’s why Lord Robert Skidelsky recommended a couple of years ago that while microeconomists could be allowed to proceed along pretty much the same statistical and mathematical path they’d been following, graduate education in macroeconomics needed to be dramatically revamped and supplemented with instruction in ethics, philosophy, and politics.
I’m not aware of this actually happening in any top economics PhD program (let me know if I’m wrong), despite the efforts of George Soros’s Institute for New Economic Thinking and others. What I’ve noticed instead, though, is an increasing confidence and boldness among those who study economic issues through the lens of other academic disciplines.
A couple of years ago I spent a weekend with a bunch of business historians and came away impressed mainly by how embattled most of them felt. Lately, though, I’ve found myself talking to and reading a little of the work of sociologists and political scientists, and coming away impressed with how adept they are in quantitative methods, how knowledgeable they are about economics, and how willing they are to challenge economic orthodoxy. The two main writings I’m thinking about were unpublished drafts that will be coming out later in HBR and from the HBR Press, so I don’t have links — but I get the sense that there are a lot of good examples out there, and that after years of looking mainly to mainstream economics journals I should be broadening my scope. (Two recommendations I’ve gotten from Harvard government professor Dan Carpenter: Capitalizing on Crisis: The Political Origins of the Rise of Finance, by Sociologist Greta Krippner, and The New Global Rulers: The Privatization of Regulation in the World Economy, by political scientists Tim Büthe and Walter Mattli.)
Even anthropology, that most downtrodden of the social sciences, has been encroaching on economists’ turf. When a top executive at the world’s largest asset manager (Peter Fisher of BlackRock) lists Debt: The First 5,000 Years by anthropologist (and Occupy Wall Streeter) David Graeber as one of his top reads of 2012, you know something’s going on.
What’s going on is probably not the incipient overthrow of economics. As described by Lazear, its imperialistic power has in large part been the result of its uniformity of approach over the past half century. (That, and economists have actually been right about some things.) As best I can tell, there is no such methodological consensus in sociology, political science, anthropology, or history at the moment. But the economists’ consensus is wobblier than it’s been in a while (especially in macro), there is ample motive for insurrection, and the non-economists’ stores of intellectual ammunition are growing. Economics may well have reached the stage of imperial overstretch. Interesting times lie ahead.